Cost-reimbursement
contracts, which reimburse contractors for all their costs, represent the
highest monetary risk to the Federal Government.In our sample of 40 contracts, 33 were
awarded on a cost-reimbursement basis. The Internal Revenue Service’s (IRS) predisposition
to use cost-reimbursement contracts could result in inefficient use or misuse
of taxpayer funds.

WHY TIGTA DID THE AUDIT

The
overall objective of this review was to determine whether the IRS is using the
appropriate contract types, as prescribed in the Federal Acquisition
Regulation, to accomplish its mission of tax administration.

WHAT
TIGTA FOUND

Overall, the
contract types used for the 40 sampled contracts were not improper based on the
statements of work and Federal Acquisition Regulation definitions.However, the
contract files often did not contain justification for the type of contract
selected and little coordination or discussion regarding contract type occurred
between program offices and the Office of Procurement Contracting Officers
prior to submission of the statement of work.Instead, program offices selected the contract type they preferred and
developed an applicable statement of work tailored to that particular contract type
for submission to the Contracting Officer.Further, cost-reimbursement contracts were
used routinely because that was the contract type originally awarded or used on
the prior procurement request and little effort was made to convert follow-on
work to less risky contract types.

In 2008, the
IRS took some positive actions to reduce the use of cost-reimbursement
contracts, including the use of hybrid contracts and the establishment of a
Contract Review Board that must review and approve all proposed modernization
and information technology requisitions proposed as cost-reimbursement contracts
for more than $1 million.However, given the overall increased monetary risk to the
Federal Government from cost-reimbursement contracts, strong measures must be
in place to reduce the customary use of this contract type.As such, improved controls in three key areas
related to the coordination and planning of the contract type prior to award could
facilitate a better review and selection of the contract type.

WHAT TIGTA RECOMMENDED

The Director, Procurement, should ensure
that Contracting Officers document the contract file with their detailed
justification for awarding a cost-reimbursement contract and/or a contract that
does not use Performance-Based Acquisition methods.The Deputy Commissioner for Operations
Support and the Chief, Agency-Wide Shared Services, should establish and
implement guidance that requires members of the acquisition team to meet and coordinate
prior to writing the statement of work to ensure that the best value contract
type can be negotiated.Finally, the
Deputy Commissioner for Operations Support should require the program offices
to routinely review contracts prior to the IRS exercising option years or recompeting the
contracts for follow-on work, for the possibility of converting all or
portions of the contracts to less risky contract types.

The IRS fully agreed with our first two recommendations
and partially agreed with the third recommendation. The Office of Procurement Policy is developing
templates for documenting contract type decisions and rationale when
Performance-Based Acquisition methods are not used.The Deputy Commissioner for Operations
Support has issued a memo emphasizing the use of the “7 Steps to
Performance-Based Acquisition.”In
addition, the IRS plans to include a module entitled “Types of Work Statements,
Appropriate Contract Types and Risk” in the annual Advance Acquisition Planning
conference to emphasize the importance of the acquisition team selectingthe appropriate contract type.Finally, IRS management agreed that contracts
should be reviewed when recompeting for follow-on work to less risky contract
types, but disagreed with changing the contract type at the time of exercising
an option.The IRS plans to look for
opportunities to use firm fixed-price contracts on an ongoing basis.

READ THE
FULL REPORT

To view the report,
including the scope, methodology and full IRS response, go to: